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| John's Story Before Senior Settlements, John's options were: lapse his policy, increase his premium payments, or withdraw the cash value and surrender the policy. John doesn't like any of these options because he wants to ease the estate tax burden on his children. READ MORE >> |
A Senior Settlement, also called a Lifetime Settlement, generates immediate wealth for individuals who own life insurance. This settlement offers a policy owner the option to "sell" their existing life insurance policy(ies) and to receive a cash settlement amount that is predicated upon the face value of their life insurance policy. The settlement amount will vary from individual to individual and will be an amount greater than the cash value accrued in the policy, but less than the policy's death benefit.
Senior Settlements utilize similar principles as those used by the life insurance industry to determine your settlement amount. Whereas the life insurance industry uses actuarial tables and your medical history to ascertain a “life expectancy” from which they determine your premium obligation, the Senior Settlement industry uses similar methods to determine a “life expectancy” from which they determine the settlement amount on your life insurance policy. The settlement amount that you can expect for your policy is roughly equivalent to the future death benefit represented in today’s dollars, less the expected future premium stream. In effect, the face value of your policy is discounted to an amount equivalent to the value of the policy in today’s dollars when discounted by the number of years assessed as a life expectancy for people of your age and health status.
Senior Settlement Example:*
| Gender | Age | Policy Face |
Cash Value |
Surrender Value |
| Male | 79 | $500,000 | $56,000 | $56,000 |
| Gender | Age | Policy Face |
Settlement Amount |
| Male | 79 | $500,000 | $130,000* |
| Accumulated Premium Payments - $72,000 |
* A fictional case created for the specific purpose of illustrating the value of a Senior Settlement vs. surrendering a policy.
The individual will collect $130,000 with a Senior Settlement. If he surrenders his policy, he only receives $56,000.
Senior Settlements may also be useful when:
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The retirement of an executive makes the maintenance "key man" life insurance policy unnecessary. |
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A loan secured by a life insurance policy has been satisfied. |
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The poor performance of a policy forces an increase in premiums and can no longer be maintained. |
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The settlement amount can be used by the children to purchase assets away from the parent's estate to reduce estate taxes. |
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Buy-Sell coverage is used by a business partner to generate funds to purchase equity from a retiring partner. |
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Reasons for a Senior Settlement:
Some of the most common reasons to engage a Senior Settlement:
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If a life insurance policy is no longer needed or wanted, or the reason for which it was purchased no longer exists, then it is often more effective to “sell” the policy than to surrender or lapse the policy and collect any possible cash value that it may contain. |
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If a life insurance policy purchased for a specific reason and the need for that policy remains, but the policy is under-performing and should be replaced with better coverage, the sale of the policy will generate more capital for the replacement coverage than moving the cash in the current coverage to the new coverage through a 1035 exchange. |
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Many high net worth seniors have purchased life insurance to cover the estate tax obligations of their beneficiaries. However, many of these individuals still own individual policies rather than Second-To-Die life insurance. A Senior Settlement provides the capital making the replacement of the old coverage easier for the agent representing the insured. |
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The insured’s estate is reduced and they don’t need as much coverage as they currently carry. The individual can “sell” the unneeded portion of their life insurance portfolio rather than reduce the coverage amount. |
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Benefits of Senior Settlements to Policy Holders:
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Instead of surrendering a policy, engage a Senior Settlement and receive a considerable amount above the surrender value. |
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Fund new, more cost-effective life insurance policies such as joint survivorship life insurance. |
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Sell the unneeded portion of a life insurance policy due to the reduction in the size of an estate. |
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Generate capital to fund other ventures. |
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Engage a Senior Settlement in lieu of a 1035 exchange to replace old life insurance coverage with new life insurance coverage. |
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Benefits for Insurance and Financial Professionals:
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Utilize a Senior Settlement to sell replacement coverage, annuities, etc. |
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Receive compensation for the placement of a Senior Settlement. |
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Generate additional capital for your client. |
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Use a Senior Settlement to create effective alternatives to traditional estate and financial plans. |
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Candidates for a Senior Settlement:
The following requirements must be met for an individual to qualify for a Senior Settlement:
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Life Expectancy*: under 14 years |
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Policy type: any type of life insurance |
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Policy amount: varies from carrier to carrier, but many carriers have a minimum of $250,000. |
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Insurability: in many cases, a change in the insured's medical profile is required. |
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* All other things being equal, this equates to an individual 70 years old or older who is in average health.
To learn more about whether a Senior Settlement is an appropriate option for you, contact us at 1-800-644-6032, or info@wilbanks.net. Your inquiries are completely confidential and free.
Complete the Senior Settlement application.
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